Obama Embraces Business Agenda on Exports, Roads, Taxes, Debt

U.S. President Barack Obama addresses a Joint Session of Congress while delivering his State of the Union speech. Photographer: Brendan Smialowski/Getty Images

Jan. 26 (Bloomberg) -- President Barack Obama embraced much
of the business community’s agenda last night, calling for
progress on stalled trade pacts, investments in roads and
education, reworking the corporate tax code, and freezing
discretionary spending to cut the deficit.

The pledges in the State of the Union address by Obama, who
tussled with business groups during the first two years of his
term, match requests by chief executive officers from Verizon
Communications Inc., Honeywell International Inc. and JPMorgan
Chase & Co. in a report they presented to the administration
last month.

Obama “has put an olive branch out to business, and it
seems like a sincere offer,” said Jim Kessler, vice president
for policy at the Third Way, a Washington-based policy group
that describes itself as moderate. “The president seems to be
focused on growth and making business a partner, not a foil.”

With Republicans taking control of the House of
Representatives and U.S. growth still sluggish, Obama said his
proposals were aimed at creating jobs and reorienting the
economy to confront challenges from abroad.

Instead of pushing contentious issues such as health-care
legislation and overhauling financial regulation, as he did in
the first two years of his term, Obama focused on investments
for growth, which should garner support from corporate leaders,
Kessler said.

Profits, Stocks Up

“Corporate profits are up and the economy is growing
again, but we have never measured progress by these yardsticks
alone,” Obama said in his speech. “At stake is whether new
jobs and industries take root in this country, or somewhere
else.”

To help “maintain America’s leadership in a rapidly
changing world,” Obama called for Congress to extend tax
credits to fund college education, proposed joining with
business to expand wireless access and pledged to work with
states to curb medical malpractice costs, a longstanding demand
of some Republicans.

While Obama echoed themes espoused by the Business
Roundtable and U.S. Chamber of Commerce in recent weeks, he
proposed them with his own twist: Instead of reducing corporate
taxes, he proposed cutting the rate while closing loopholes so
the net effect on the budget would be zero. The president also
called for ending $4 billion a year in tax subsidies to oil and
gas producers.

And though he urged Congress to approve a free-trade
agreement with South Korea in the coming months, he didn’t give
a deadline for pacts with Colombia and Panama. Multinational
companies led by Caterpillar Inc. have pushed for speedy
implementation of those deals as well.

EDUCATION

“Since November, President Obama has taken important steps
-- including his recent order for a comprehensive regulatory
review -- signaling that he is ready to change direction and
focus on what is necessary to drive a vigorous recovery,” John
Engler, president of the Business Roundtable, said in a
statement. The Washington-based group presented its plan to cut
taxes and spur trade to Obama last month on behalf of members
such as Verizon, JPMorgan and Honeywell.

Obama said the nation faces a “Sputnik moment.” It was a
reference to the Soviet Union’s launch of the first satellite in
1957, a wake-up call that spurred a surge in U.S. spending for
math and science education, and created the National Aeronautics
and Space Administration.

Today, fewer than half of U.S. students are proficient in
science, renewing questions about the country’s global
competitiveness, the Education Department said this week, citing
the 2009 National Assessment of Educational Progress.

The president pledged to add 100,000 teachers of science,
engineering and mathematics within 10 years. He also asked
Congress to make permanent a tuition tax credit that he said was
worth $10,000 for four years of college.

He repeated his call to replace President George W. Bush’s
No Child Left Behind Law, and to give schools more flexibility
in demonstrating academic progress.

The threat of too few technology graduates, such as
computer scientists and software programmers, worries Dale
Meyerrose, vice president of cybersecurity for federal
contractor Harris Corp., a communications-equipment manufacturer
and computer-network management company based in Melbourne,
Florida.

“How long is it going to be before we are held hostage by
having to get either technology or skills from some place other
than our own country?,” Meyerrose said in an interview before
the speech.

Meyerrose, former chief information officer at the U.S.
Office of the Director of National Intelligence, which oversees
information sharing among intelligence agencies, said of the
last “half dozen” highly technical people Harris hired, none
was a U.S. citizen.

Obama will find a natural ally in U.S. businesses who share
his concern about the lagging academic performance of U.S.
students relative to peers in China and India, said Jack
Jennings, president of the Center on Education Policy, a
Washington-base group that advocates for public education.

“Business people have been saying for a long time that the
U.S. should pay more attention to what other countries are doing
in education,” Jennings said in an interview after the speech.

TECHNOLOGY, BROADBAND

As part of his technology push, Obama said he wants to
increase U.S. research and development as a share of the economy
to its highest levels since President John F. Kennedy began the
space program in the 1960s.

Obama proposed extending high-speed Internet access to more
citizens, saying the U.S. lags behind many other nations in
providing broadband to the public. “South Korean homes now have
greater Internet access than we do,” he said.

To close the gap, Obama called for providing high-speed
wireless access to 98 percent of all Americans in five years,
“where farmers and small business owners will be able to sell
their products all over the world” and patients can have face-to-face video chats with doctors.

Freezing domestic spending probably wouldn’t reduce the $80
billion the federal government spends on information technology
every year because such technology boosts efficiency and can
help reduce the deficit, said Alan Balutis, a former chief
information officer at the Commerce Department.

“How else could agencies deal with increased efficiencies,
do more with less, meet ongoing citizen demands with reduced
staff, and so on, without the application of technology?”
Balutis, now director of the Internet Business Solutions Group
for Cisco Systems Inc. in Washington, said in an e-mail.

Obama’s embrace of innovation helped to make the address
“a great speech,” Gary Shapiro, president of the Arlington,
Virginia-based Consumer Electronics Association, said in an
interview. Obama’s call for expansion of high-speed wireless
Internet service was “extremely positive,” said Shapiro, whose
association includes device makers.

ROADS, BRIDGES

Obama said he will intensify efforts to repair the nation’s
roads, bridges and mass-transit systems, calling the work
necessary to create jobs and compete with nations that have made
those investments.

The president said he will look to attract more private
capital for big projects. Details on the spending and programs
won’t be provided until the president’s budget is presented next
month, White House press secretary Robert Gibbs said before the
speech.

“We will put more Americans to work repairing crumbling
roads and bridges,” Obama said. “We will make sure this is
fully paid for, attract private investment and pick projects
based on what’s best for the economy, not politicians.”

The federal Highway Trust Fund, which pays for road and
transit projects from sales taxes on fuel, is on course to run
out of money by 2014, according to the Congressional Budget
Office. House Republicans have proposed reducing federal
spending to 2008 levels.

The administration’s transportation plan calls for more
investment in high-speed rail.

“Within 25 years, our goal is to give 80 percent of
Americans access to high-speed rail, which could allow you to go
places in half the time it takes to travel by car,” Obama said
in the speech.

“We have to fix what has decayed and invent what we need
for America in 2050,” said Ron DeFeo, chief executive officer
of construction-equipment maker Terex Corp. based in Westport,
Connecticut.

ENERGY

Obama said he seeks to increase U.S. electricity from
“clean” power sources to 80 percent by 2035, part of a plan to
cut reliance on fuels such as oil while expanding the use of
nuclear energy and natural gas.

The president failed last year to push energy and climate-change legislation through Congress, forcing him to find new
ways to reduce U.S. dependence on foreign oil and limit
greenhouse-gas emissions linked to climate change. Obama said he
will seek to boost renewable-energy investment by more than 85
percent, funded partly by ending about $4 billion a year in tax
subsidies to fossil-fuel producers led by oil and gas.

“The president’s clean-energy goals are highly ambitious,
but likely achievable with aggressive technology policy,” Paul
Bledsoe, a former White House energy aide in the Clinton
administration, said in an interview.

Obama, unlike last year, didn’t mention expanding offshore
oil and gas development. The American Petroleum Institute, a
Washington-based trade group for oil and gas companies, called
the omission a “missed opportunity.’

‘‘The president focused on job growth through federal
spending but was silent on one of the best ways to create jobs:
allow more energy development,’’ Jack Gerard, the group’s
president, said in an e-mailed statement.

‘‘Natural gas and renewables are important components of
our energy mix, but we will need our nation’s vast oil resources
for decades to come.”

“The president has had it in for the oil, gas and coal
industries,” Representative James Sensenbrenner, a Wisconsin
Republican, said after the speech. Obama’s proposal would drive
up the costs for energy and make U.S. companies less
competitive, he said.

The president’s call to end tax preferences for oil, gas
and coal producers renews an appeal that failed a year ago.

Obama also will set a goal of putting 1 million advanced-technology vehicles on U.S. roads by 2015, setting the U.S. on a
path to cutting oil consumption by 785 million barrels by 2030.

SPENDING FREEZE, DEFICIT

Obama’s call for a freeze on discretionary spending drew
skepticism from Republicans.

“It freezes in place an extraordinary increase in spending
that’s occurred over the last two years,” said Mitch McConnell
of Kentucky, the Senate minority leader. Senator John Thune of
South Dakota said Obama’s proposal would still leave government
bloated, having grown at 10 times the rate of inflation in the
last two years.

“That’s probably not going to inspire a lot of people who
are serious about -- who want to see meaningful efforts to
reduce spending and reduce the debt,” Thune said.

House Republicans are proposing to slash spending to 2008
levels, which would fall short of the estimated $165 billion,
five-year savings from Obama’s plan, according to Stan
Collender, a former congressional budget analyst.

“If nothing else changes and the economy performs as
anticipated and we freeze spending for five years it would have
a not-insignificant impact on the budget deficit,” said
Collender, managing director at Qorvis Communications in
Washington. “Add to that revenues from economic growth and you
can get 65 percent of the way to eliminating the deficit.”

Obama also called for a bipartisan solution to
strengthening Social Security without “slashing benefits” for
current or future retirees, an idea that didn’t satisfy
advocates on either side of the issue.

Nancy Altman, co-chairman of the Strengthen Social Security
Campaign, said Obama “left open the door for significant cuts
to Social Security’s already modest benefits, a change that goes
against the will of most Americans.”

Chuck Blahous, who was director of President George W.
Bush’s Social Security commission, called Obama’s warning about
slashing benefits “unnecessary.”

If reform is going to happen, said Blahous, “at some point
the president needs to start explaining the real benefits of
reform instead of lending legitimacy to groundless fears.”

TRADE

Obama sided with companies such as Goldman Sachs Group Inc.
and FedEx Corp. and called on Congress to pass the long-stalled
free-trade agreement with South Korea. The administration
renegotiated that deal in December in order to meet the demands
of Ford Motor Co., and the deal now is backed by both Ford and
the United Auto Workers union.

“This agreement has unprecedented support from business
and labor; Democrats and Republicans, and I ask this Congress to
pass it as soon as possible,” Obama said in his speech.

He stopped short of meeting the demands of Republicans such
as House Ways and Means Committee Chairman Dave Camp and
companies such as Caterpillar that he submit to Congress two
other agreements, with Panama and Colombia, which were
originally signed by the administration of his predecessor
George W. Bush.

“‘‘Frankly, I am disappointed by the lack of an action
plan or commitment to move the long-stalled Colombia and Panama
trade agreements,’’ Camp of Michigan said in a statement.
Without them, ‘‘we will only lose ground to our foreign
competitors.’’

South Korea is the bigger prize for many U.S. companies, as
total trade with that nation topped $80 billion in the first 11
months of 2010, compared with $25 billion for Colombia and $5.8
billion for Panama, according to U.S. Commerce Department data.

‘‘The Korean market is six times larger than the Colombian
market, and so that’s where the bulk of the benefits would be,’’
Stephen Biegun, vice president for international governmental
affairs at Ford, said yesterday.

DEFENSE

Obama included defense among the areas likely to see cuts
as the U.S. tries to pare its deficit, with reductions likely to
affect military contractors such as Lockheed Martin Corp. and
General Dynamics Corp.

The president gave no specifics. Defense Secretary Robert
Gates on Jan. 6 announced the administration’s plan for $78
billion in Pentagon spending reductions over five years.

‘‘He was a lot more lenient on defense than I had
expected,’’ said Mackenzie Eaglen, a research fellow in national
security for the Heritage Foundation, a policy group in
Washington. ‘‘I would argue a lot of members of Congress want to
cut defense a lot more than President Obama right now.’’

Defense contractors will benefit from the same initiatives
Obama proposed for business generally, including a reduction in
corporate taxes, spending on technology and an emphasis on
exports, said Philip Finnegan, an analyst who tracks defense
companies at Teal Group in Fairfax, Virginia.

‘‘A lot of major defense and aerospace firms are also major
technology firms,’’ Finnegan said, citing Lockheed and Northrop
Grumman Corp.

HEALTH CARE

Overhauling health care, a highlight of Obama’s address to
Congress a year ago, received scant mention last night. The
president defended the legislation, which the Republican-controlled House of Representatives voted to repeal this month,
in a largely symbolic gesture.

He reiterated the early benefits of the overhaul, such as
requiring health insurance companies to cover pre-existing
conditions. He reiterated that the overhaul will slow the
increase in medical costs and that repealing the measure would
add to the U.S. deficit.

‘‘Still, I’m willing to look at other ideas to bring down
costs,” including medical malpractice reform “to rein in
frivolous lawsuits,” echoing language used by his political
opponents critical of the new health-care law.

Republicans will have a tough time rolling back the law
because the new insurance regulations “have made people’s
confidence in their coverage greater,” said Randall Abbott, a
senior consultant at Towers Watson & Co., a New York-based
consulting firm.

LABOR

Obama’s plan to invest in infrastructure dovetails with
job-creation spending proposals by union leaders such as AFL-CIO
president Richard Trumka. The 11-million member AFL-CIO has
called for spending billions of dollars on schools and highway
repairs.

Labor unions oppose Obama’s push for a freeze in federal
spending, Trumka said in an e-mailed statement after the speech.

“We firmly believe that we should not be cutting
government spending when the economy is so weak,” he said.

Unions also want Obama to “stick to his campaign
promises” to improve trade deals, he said.

Labor’s agenda for Obama’s State of the Union was different
from its wish list in his first two years in office. With
Democratic allies no longer controlling the House and with Obama
adopting a more pro-business stance, unions have shifted from
pressing him to take action that could increase their ranks.